If consumption function for an economy Is given as: C = 120 + 0.9 Y, then what is the value of multiplier?

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Solution

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

K= 1/ (1-MPC)
If C= 120+ 0.9 Y, MPC= 0.9
Multiplier(k)= 1/ (1-0.9)
= 1/ 0.1
= 10 times

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